Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In the pre-opening, European indexes were trading higher. Today’s session should be divided into two parts. During the morning, European indices should be conditioned by the daily news and the order flow that will flow to the trading rooms of various financial institutions. In this sense, it is expected that investors position themselves in relation to the publication of the employment report in the US, which will mark the second part of the session. Thus, it is not impossible to occur a closing of selling positions in sectors that in recent days have been most penalized by some selling pressure, in particular the banking and mining sectors. Later in the morning, after the investor positioning phase is normal to watch a decrease in volume, a consequence of the expectation regarding the disclosure of the US employment report.
US markets continue to show signs of resilience in the face of loss of momentum seen in previous sessions by European and Asian indices. The only less positive note is that this over-performance is more based in defensive sectors than in cyclic sectors. This pattern indicates some skepticism about the economic climate, which dominates the current phase of the equity markets. In this field, the ADP report showed that in May were created 173,000 jobs in the private sector. Almost all jobs were generated by the services sector as the industry continues to be negatively influenced by the weakness of the global economy, the lack of competitiveness due to the appreciation of the dollar in the last 12 months and the crisis affecting the oil industry. In turn, the weekly claims for unemployment benefits showed a decline for the third consecutive week, down a thousand for a total of 267 thousand in the period ended 28 May. The employment report to be released today, will be the most important of the last few months, it will be the last before the meeting of the Fed in June, considered by its members as a possible date for an increase in interest rates. Last year, the labor market has been at the heart of economic growth in the US, given its influence on the performance and feeling of Americans. Initially, the creation of employment (which has remained at very high levels considering the low unemployment) did not result in a significant increase in wages. However, in recent months there has been an increase in wages that have a double positive impact on the objectives of the Fed. On one hand, rising wages increases consumption and reflexively boosts GDP. On the other hand, the increase in wages generates inflation (increasing production costs and intensifying the demand for goods and services), helping the Fed to achieve the desired 2%. Thus, the two main employment report variables will be job creation and change in wages. Most likely, it is sufficient that only one of the two variables increase to reinforce the likelihood of an increase in US interest rates. Even if there a significant reduction in employment but accompanied by a rise in wages, the Fed may consider that the conditions for a rate hike are met. This position is explained by the fact that the lack of job creation is due not to a decline in economic activity but the lack of people available for hire without a prior increase in wages. In other words, such a scenario could mean that companies would be forced to pay higher wages to hire new employees, thus triggering the positive effect desired by the Central Bank. The employment report also deserves a note of warning. The reaction to its publication may be volatile to the extent that their numbers may be adulterated due to the strike by 36,000 employees of Verizon. Many of these workers (who are paid weekly) may not have received their salary and as such may be statistically treated as unemployed.
Asian indices closed higher, although volumes were lower than average due to the anticipation concerning the release of the US employment report. In Japan, despite the appreciation of the yen, the Nipponese stocks were animated by the optimism shown by Fast Retailing. This company is one of the largest retailers in the country and announced that it expects its sales to rise 5.70% in annual terms. In addition to the positive impact on their shares (representing almost 9% of the Nikkei), this announcement returns some optimism about the prospects of the economy, which at present has several weaknesses, particularly domestic consumption. In China, the economy continues to give signs of weakness, with Caixin PMI index for the services falling from 51.8 to 51.2 in May. The slowdown in the services sector is something disturbing in that it had shown some resilience to the slowdown in the rest of the economy and explains why should the Beijing government program be at the heart of the economy in the coming years.